Public procurement or sales to the government from the metals and engineering sector constitutes 22.9% of total domestic sales. However, for some sub-sectors, like electrical machinery, sales to state organs is as much as 55% of domestic sales.
Given the importance of public procurement for the sector, SEIFSA has been actively involved in making national representations on behalf of the metals and engineering sector to the Public Procurement Bill and the Preferential Procurement Regulations.
Regarding the former, SEIFSA was part of the Business Unity South Africa (BUSA) business delegation that consulted on the bill at NEDLAC for the last six months. On the draft Preferential Procurement Regulations that were published for public comment on the 10th of March 2022, SEIFSA prepared a substantial written submission commenting on these regulations. Subsequently, National Treasury published the Preferential Procurement Regulations on the 4th of November 2022, with an effective date of 16 January 2023.
We have studied the published Preferential Procurement Regulations with grave concerns, particularly over the fact that National Treasury has opted to maintain the position that was contained in the draft regulations that each state organ will be given the responsibility to develop and decide their own procurement policies, particularly as it relates to the socio-economic considerations.
The SEIFSA submission warned that devolving this obligation to each state organ will create an untenable administrative and compliance environment for domestic companies. The administrative and compliance costs for a company supplying the same product to two or more state organs, who may pursue very different socio-economic agendas, will be exorbitant and punitive.
The submission suggested that National Treasury should develop a national guideline for state organs to comply with in the development of their procurement policies. This is important for institutional coordination and alignment across the multiple state organs. It will also make monitoring and enforcement of regulations possible. Coherence and uniformity should be the basis on which national regulations are developed.
The other concern is the fact that National Treasury have indicated that these Preferential Procurement regulations are a stop-gap policy instrument that will be in place until the Public Procurement Bill is promulgated. The Preferential Procurement Regulations will be in effect from 16 January 2023 and National Treasury anticipates the Public Procurement Bill to be presented before Parliament by the end of calendar year 2022 or before the end of this fiscal year (February 2023).
The concern here is that based on historic experience with bills going through the Parliament, National Council of Provinces (NCOP), promulgation and signature by the President (who may also send the bill back through the Parliamentary process for one or other issue) generally takes a long time. One can anticipate that the importance of this bill particularly given the approximately R800 billion to R1 trillion per annum of state spend that it will govern over and all the possible socio-economic considerations that are associated, the parliamentary process will not be a roughshod process. All the while the costly, uncertain and disruptive environment that the Preferential Procurement Regulations potentially create will be the prevailing reality for suppliers to the state.
The unintended consequence of this approach that has been adopted by National Treasury will likely be one where companies may well adopt a wait-and-see approach, which will itself have adverse consequences from the point of view of investment decisions that may be delayed. This again is an example of the own-goals that the country has become accustomed to scoring.
Tafadzwa Chibanguza
Chief Operating Officer